Oil price crash and diversification of the economy

The drastic drop in the price of crude oil, a major source of revenue for Nigeria, has once again re-enforced the need for the country to urgently evolve an action plan for the diversification of the economy from near sole dependence on the commodity, in order to meet the ever-growing challenges of national growth and development.
Oil prices have slumped 45 per cent in the last six months, eroding foreign-currency reserves and forcing the Central Bank of Nigeria, CBN, to devalue the currency for the first time in three years. The unexpected slump in the price of crude oil also caused a slash in the capital expenditure for the 2014 budget.
Nigeria remains Africa’s largest crude oil producer and dangerously relies on crude exports for about 70 per cent of its income and 95 per cent of foreign exchange earnings.
The commodity slumped from over 100 US Dollars to a little under 40 US Dollars per barrel inside two weeks in December 2014 alone.
While presenting the budget estimates before the Senate, last December, the Coordinating Minister for the Economy and Finance Minister, Ngozi Okonjo-Iweala, said the oil glut has caused a cut in the 2015 national budget estimates mostly affecting the capital expenditure projections, in the same way as it had caused a slash in capital expenditure in the 2014 budget.
Presenting the estimates of the N4.357 trillion 2015 budget, Okonjo-Iweala said the budget was cut by N357 billion, revealing further that the 2014 capital expenditure was slashed by 59 per cent, with the major cause being the oil price crash.
The capital expenditure in any budget estimate is the growth plans of any nation in the same way as a slashed capital expenditure amounts to arresting the growth and development of that nation for the period under review.
Nigeria has abundant material and human resources which should be deployed towards evolving a multi-pronged sustainable framework for national economic growth.
Regrettably, the oil boom of the 1970’s which ought to have provided the fulcrum for a major industrial revolution and the rapid economic development of the country only served to usher the country into the league of import dependent nations with the challenge of catching severe cold whenever the crude oil market sneezes.
The current slump in crude oil price must serve as another wake-up call on government to more aggressively pursue any economic diversification programmes that are on ground and further move to open up other sectors of the economy yearning for attention.
We are aware that government is making major in-roads in agriculture. The efforts in this area must be intensified while sectors such as tourism, manufacturing, solid minerals and aviation should be more vigorously developed to contribute much more than they are contributing presently.
The fact that the country’s economy has relatively remained resilient in the face of the current crippling crude oil price crash and insurgency in the North East geo-political zone is a testament to the fact that with a truly diversified economy, the country would be unassailable.
We buttress this position by identifying with the position of a leading global credit rating agency, Moody’s Investors Service, which recently claimed that the Nigerian economy though slowing due to the oil price slump remained resilient in the face of it and even with a further slump in the value of the naira. Not many economies can withstand such shocks and still display positive signs of recovery.
“Nigeria benefits from a resilient economy and robust fiscal position, although the recent drop in oil prices will likely put pressure on public finances and could lead to the widening of fiscal deficits,” Moody’s said.
While we commend the Federal Government for initiating moves aimed at repositioning the power sector which is crucial to the fast tracking of economic transformation, the fact remains that the momentum should not be relaxed until the goal of economic diversification is realised.
As the realities of the current oil price crash are expected to begin to hit home soon, we urge government to take pre-emptive measures aimed at protecting the populace from the expected adverse consequences of this slump.
We expect that the managers of the economy are already working on ways to cushion the effects of the crash in the short term, but what must be stressed is the need to intensify efforts to truly diversify the nation’s economy.

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